How to Get Started with Your Accounts Receivable KPI Strategy
In business, the term “cash is king” could not be more accurate. Modern CFOs, CEOs, Controllers, and Credit Managers understand the benefits of generating positive cash flow. If you want to grow your business, positive cash flow helps you invest in technology, new systems, improved processes, new offices, employees, machinery, and training. In challenging times, one obvious area to improve cash flow is accounts receivable management and collection.
Getting started with measuring Key Performance Indicators (KPIs) is important to track progress toward your growth goals. In this blog series, How to Get Started with Smart Accounts Receivable KPIs, we outline the 3 steps to employ KPIs to improve accounts receivable collections and increase cash flow. In this blog, we review 7 tips for developing your KPI strategy.
For more details, download our ultimate accounts receivable and collections guide How to Take a Winning Approach to A/R Collections. Our experts review strategies, tips, best practices, and industry benchmarks to help improve your cash flow and grow.
3 Steps Get Started with Accounts Receivable and Collections KPIs
Step 1 - Establish an Accounts Receivable KPI Strategy
Step 2 - Determine what KPI Metrics to Measure
Step 3 - Implement Accounts Receivable KPI Automation
Step 1. Establish an Accounts Receivable KPI Strategy
The basic goal of an A/R KPI strategy is to get more cash flowing and maintain good relations with customers. You need policies and procedures to keep customers on good terms, and to take action when they are delinquent. “An effective collections strategy includes a lot of information, documents, correspondence, and workflow processes – too much to manage manually, and ERP systems don’t have A/R management functionality robust enough to optimize collections." - Dynavistics' Ultimate A/R guide How to Take a Winning Approach to A/R Collections
Your accounts receivable KPI strategy should include the following:
- Set Goals to Measure - The collection goal is simple; get cash and minimize the number of accounts that enter into bad debt status. KPIs not only measure and track progress but also help you course correct to meet your goals.
- Establish Policies - Accounts receivable policies that make it easy to pay invoices will improve cash flow. Consider offering incentives to pay early or on-time, a communication schedule for reminders, offering secure payment options, plans for past due customers, etc.
- Payment Terms - What is your strategy to manage exceptions? Do you offer 30-day terms but do not collect payment until 45 to 60 days? How do you plan to handle credit issues before they become a collection problem?
- Procedures – Align your procedures with your strategy. When an invoice’s due date has passed, for example, what procedures must be executed to support your collections strategy? How do you communicate with your customers before and after the invoice due date?
- Industry Standards and Benchmarks - How do you compare with similar companies? What can you learn that will help you decide what you want your KPIs to measure against? Which industry benchmarks you want to meet or beat? We will review in detail what metrics you may include, such as days sales outstanding (DSO), bad debt, current A/R vs. past due A/R percentage, collection effectiveness index, etc.
- Payment methods - Do you make it easy for your customers to pay you? How do you determine who is a good candidate for credit terms?
- Your Strategy Team - It’s important to include key stakeholders in the credit department that have direct interaction with customers. Include them in the process of building your strategy, procedures, and system selection. You will have better success with the roll-out and adoption of changes if you have involvement and buy-in for the workers directly involved with collections. You may have collectors that have a wealth of experience who can add value to help build a winning strategy.
Why Customers Choose collect-IT by Dynavistics
Our collect-IT account receivable management solution integrates with your ERP. You get pre-built proven strategies to get started right away and customization tools to optimize further. You can count on our expertise to help you develop and implement unique KPI and collection strategies to fit your business. We help improve cash flow across various industries, including wholesale, distribution, food, and beverage, and professional services.
collect-IT is everything you need to manage accounts receivables, control credit, and detect potential issues in one collections dashboard. collect-IT is an easy, flexible, and powerful solution for small and medium-sized businesses. Learn more about collect-IT:
- Universal collections strategy with customizable options
- Automated email functions
- Attach invoices or statements to emails
- Templates for collection correspondence letters
- Calendar and task list functions
- Audit trail for the entire collections process
collect-IT provides you with the tools and insights to manage collections, analyze trends and ensure that your customers pay on time, every time.